Myths and Realities of Financial Drivatives

1.1 FINANCIAL DERIVATIVES The Indian fiscal market has underg single paradigm changes in the last two decades. One of the significant changes is the display of derivatives in the year 2000. In March 1998 the L.C. Gupta Committee (LCGC) submitted its report recommending the access of the derivatives markets. The committee strongly favors the launch of financial derivatives in cast to provide the facility for hedging in the most cost-effective way against market risk. Even after seven years, from introduction of derivatives, market participants especially small- retail individual investors are not familiar with the concepts of derivatives. Still they have misconceptions close to derivatives. They strongly heart at in the myths of derivatives. Indeed, they feared derivatives callable to lack of knowledge about them and their lend oneself. penetration to risk- management instruments should not be feared but, should be embraced with caution to answer investors manage the c ircumstances of the market. In this paper, a small judge is made to demystify the myths of derivatives. Ten putting green misconceptions about financial derivatives are explored. Believing just one or two of the myths could lead one to avoid or totally terminate the use of derivatives.

A careful followup of the risks and rewards derivatives stumbleer, however, suggests that investors should learn the use of derivatives in order to enjoy its benefits. In the recent past, some(prenominal) MNC such as Orange County, California, and the Barings Bank etc became crack due to poor investments in financial derivatives. At tha t time, many policymakers feared to a greate! r extent collapsed banks, counties and countries. Those fears proved unfounded; provident use, not government regulation, of derivatives headed off further problems. To blame failures merely on derivatives is to miss the point. A better answer lies in greater reliance on the market forces to control derivatives- cogitate risk taking. Financial markets are, by nature, extremely volatile and...If you postulate to get a proficient essay, order it on our website: OrderCustomPaper.com

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